Paltry number of SBA Loans to Black businesses

A recent Wall Street Journal (WSJ) story detailed the inability of Black-owned businesses to be approved for SBA-backed loans made through America’s most prolific small business lenders. And while it was satisfying – in a weird kind of way – to have confirmed what Black business owners have known for years, it was something of a gut punch to learn just how bad the situation has become.

“Black borrowers received 1.7 percent of the $23.09 billion in total SBA loans. The percentage is down sharply from 8.2 percent of overall SBA loan volume in fiscal 2008. By number of loans, Black-owned small businesses got 2.3 percent of the federal agency’s roughly 54,000 loans last year, down from 11 percent in 2008,” the newspaper reported.

According to the SBA, their average loan is $426,796, more than double the average of $192,919 in 2005. That’s a major problem for Black businesses because 80 percent of the loans Black businesses need is $150,000 or less.

As you might imagine, there are several reasons this latest report is so disturbing. In addition to Black-owned businesses being approved for 2.3 percent (only 1,242) of the 54,000 SBA-backed loans, Black businesses received just 1.7 percent of the dollar value of those loans – $325 million – at a time SBA lending spiked to $30.29 billion.

So get this straight: While the economy is relatively booming and the number of Black-owned businesses is skyrocketing (now about 7 percent of the total number), federally backed loans to support the growth and development of these businesses is not just shrinking, it’s practically disappearing. To be blunt, that’ shameful.

But we have not been idle in the face of these disturbing figures.

The U.S. Black Chambers, Inc. has forged a relationship with the National Bankers Association that resulted in $5 million being deposited into Black-owned financial institutions. We also supported Maria Contreras-Sweet’s confirmation as the new administrator of the U.S. Small Business Administration.

We believe that Administrator Contreras-Sweet, who founded ProAmerica Bank in Los Angeles, not only understands the challenges facing Black businesses. Our conversations with her lead us to believe that the shrinking numbers of loans to African American businesses troubles her, too, and that she will immediately go to work to make improvements.

During her recent confirmation speech, Administrator Contreras-Sweet declared that one of her top priorities would be to ensure that sufficient funding would be granted to the hardworking minority businesses that need it the most. We support utilizing innovative, non-traditional avenues of lending money to minority firms to guarantee success. Continuing the same-old strategies of asking banks to lend to Black firms and expecting a different outcome is the very definition of insanity.

Among our recommendations made to Contreras-Sweet: Enforce Section 342 of the Dodd-Frank Act. This provision of the Wall Street Reform Act, authored by California Congresswoman Maxine Waters, contains little used (and more rarely enforced) provisions governing the activities of financial institutions and the federal agencies that oversee their operations.

If enforced, Section 342 would fit the description “Community Reinvestment Act On Steroids.” In a nutshell, if a bank’s hiring practices, procurement policies and lending performance don’t demonstrate their commitment to a level playing field, (at least on paper) that bank can’t – or shouldn’t be allowed to – borrow money from the Federal Reserve.

If a bank can’t borrow money cheaply, it can’t lend money at a profit. If a bank doesn’t make a profit, it’s either declared insolvent and goes out of business, or it’s bought by another, bigger bank. Unfortunately, it seems some banks would rather face the prospect of insolvency or takeover than lend money to a Black-owned business.